The US dollar’s status as the world’s reserve currency took another blow last week when Venezuela stopped accepting it as payment for oil. Instead, the oil-rich country has begun pricing its chief export in the Chinese yuan and not in euros, according to earlier reports.
Venezuela is looking to make an end-run around financial sanctions the US recently imposed. More than 120 people in Venezuela have been killed by their government’s violent crackdown as the economy has been upended by years of socialist policies, mismanagement, and a plunge in the market price of oil, the nation’s top export.
The development is bad news for the US dollar as the world’s reserve currency, a status that has maintained global demand for the greenback well above levels at which it otherwise would stand. Tha, in turn, has enabled profligate politicians in Washington to borrow money at interest rates far below the price they otherwise would be compelled to pay.
Iran ditched the dollar in lieu of the yuan in 2012. Russia began its turn to the yuan in 2015. The more that other nations engage in oil transactions with a currency other than the dollar, the closer the dollar comes to a tipping point in terms of demand and price. Once that threshold is reached, foreign nations and other investors will begin unloading their holdings of the US dollar.
This is expected to precipitate a financial crisis for the US government, which will have to pay much higher interest rates in order to borrow money to finance its ever-expanding debt. Those higher rates will make the debt jump even higher, which means the government will have to borrow even more money at even higher rates, fueling a growing spiral of debt.